What are ULIPs and their types?
Observing inflation every year and feeling that you do not have sufficient money to absorb the current expenses? Does this leave you to worry about the more significant expenditures that will fall in the future? If yes, then nothing but saving is the only option you are left with. Keeping money for the future innovatively and systematically is the best alternative to manage future goals. But small portions of savings collected over time cannot help you handle more considerable expenses like child’s marriage, education, and others. This is why you need financial instruments like ULIPs to invest your money.
Why are ULIPs a preferred option to collect money? You will find it out, but before that, let us study ULIPs and the different types of ULIPs?
Table of Contents
- What are ULIPs?
- What are the different types of ULIPs?
- How to select the best ULIP plans in India?
What are ULIPs?
Unit Linked Insurance Policies (ULIPs) are financial instruments that allow you to create wealth for yourself. These are the insurance policies that provide you life cover as well as generate wealth for you in abundance. Under the ULIP type of insurance policy, a portion of the premium you pay is further invested in a shared pool known as funds.
This money is allocated to different funds like equity, debt funds, or combined funds. Operated on market risks, these funds pay you returns accordingly. ULIPs are a long term investment option that gives you higher returns. The financial instrument comes with a lock-in period that defines the time before you are not allowed to withdraw the money invested.
The excellent part of ULIP plans in India is that you get the flexibility of investment and can move your invested money from equity funds to debt funds.
After knowing the benefits of ULIPs, let us now look at the type of ULIPs.
Types of ULIP Plans
With ULIPs, life aims to save better and more prominently over a long period. This is a kind of saving which allows you to create wealth for long term financial goals. These are the types of ULIP plans:
Single Pay Premium ULIP: Single premium ULIP is when investors have to pay a premium amount only once for the entire policy term. Making a one-time payment is a hassle-free task that keeps you away from the worries of monthly or half-yearly instalments.
Regular Pay Premium ULIP: Regular pay premium ULIP is when an investor pays the policy premium over some time. The investor can choose to make the investment either monthly, quarterly, half-yearly, or annually based on the premium paying capacity. Monthly instalments are a safe option for small and affordable investments.
Guaranteed ULIP Plans: ULIPs that offer guaranteed benefits like insurance and investment options allow you to enjoy better returns over a long time, without much involvement of market risks. For guaranteed ULIPs, you do not have much opportunity to put money into equity funds which makes your investment safer.
Non-guaranteed ULIP Plans: Under non-guaranteed ULIPs, the investors can choose from various ranges of funds. You can choose to invest in equity funds and still enjoy long-term growth.
Life-Staged based ULIP Plans: In Life-staged ULIP plans, you can distribute the money across equity and debt funds. The allocation of funds depends on age. More amount is allocated to equity funds at a young age and a lesser amount in debt funds. When you grow old, more money can be shifted from debt funds to equity funds. Such financial planning to meet expenses at different life stages is called life-staged based ULIP plans.
Non-Life Staged ULIP plans: When the premium is invested as per your choice of taking risks, it is non-life staged ULIP plans. People who are risk lovers put their money in this manner.
After evaluating the different types of ULIP plans, the next important thing to know is the tips to select the best ULIP plan.
How to select the best ULIP plans in India?
If you are thinking of saving money for future goals, ULIPs are the best plans in India as they provide life cover and wealth creation. When convinced with this great idea of creating wealth, you must find out how to select the best ULIP plan.
Here are the steps to find out the best ULIP plans in India:
- Select ULIP fund options as per your goals: You must pick the funds for investment after analysing the returns you expect. If you are a bold investor, you must put the money in equity funds. But if you are looking for alternatives to save wealth, then debt funds is the most suitable preference.
- Choose ULIP that helps you meet financial goals: You aim to save money for your child’s marriage, education or building a home. Saving money with ULIP provides you financial protection to help your dependent manage expenses. The idea of ULIP is to arrange financial support for the family when there is a need for money, and you are not there to take care of them.
- Understand the ULIP charges: You must know the amount you will have to pay to purchase the ULIP. Buying a ULIP cost you these charges:
- Premium Allocation Charges.
- Fund Management Charges.
- Policy Administration Charges.
- Mortality Charges.
- Find out the tax benefits: ULIPs provide tax benefits to the policyholder under various stages of returns. The benefits include:
- You get the tax benefit under section 80 C of the Income Tax Act,1961.
- The money growth you receive under ULIP is not taxable.
- No tax deductions when you switch funds between equity and debt.
- Absolutely tax-free benefit when you get the maturity amount.
- Always check the features of ULIPs: When you are buying the best ULIP plan, you should check the features of ULIPs. Some of the standard features that you must explore include:
- Limit of Partial Withdrawals.
- Several free switches are provided under the ULIP plans.
- Permission of top-ups indicates the number of times you can invest surplus money under the existing plan.
- Compare the ULIP plans of different companies.
The secret of saving surplus money is to start saving now. There can be several ways to save money and earn returns on it. Here you have read how ULIPs make an excellent choice of investment. It provides life cover along with the discretion to make investments. So buy the best ULIP plan that comes with multiple features for your benefit.